Bank of Japan holds fire, eyeing US economy, Brexit risk

TOKYO: Japan’s central bank gave an upbeat assessment of the world’s number three economy on Thursday, but it flagged risks including “developments” in the US and Chinese economies, as well as Britain’s exit from the European Union.

The Bank of Japan held fire on fresh policy measures in a widely expected decision after a meeting, a day after the Federal Reserve tightened borrowing costs and underscored its confidence in the world’s top economy.

All eyes are now on BoJ governor Haruhiko Kuroda’s afternoon news briefing hoping for some guidance on the bank’s future plans.

BoJ policymakers pointed to a “steady recovery” in Japan’s economy, even as its own efforts to stoke inflation come up short.

“The central bank has little reason to do more now — the economy is perking up, with a tight labour market stoking inflationary pressures and core consumer prices rising again,” said Bloomberg Intelligence economist Yuki Masujima.

“Risks to the outlook include the following: developments in the US economy and the impact of its monetary policy on global financial markets,” the BoJ said in a statement.

It also cited edginess about China’s economy, which last year grew at its slowest pace in a quarter of a century, while Britain’s exit from the EU could have implications for the huge trading bloc.

The US Fed’s rate hike Wednesday is a potential plus for Tokyo’s growth efforts as it highlights strength in a major market for Japanese products.

Rate rises tend to boost the dollar against the yen, which is good news for the profitability of Japanese firms doing business abroad.

On Thursday, the BoJ left its massive 80 trillion yen ($705 billion) annual asset-purchase scheme unchanged and said it would press on with a plan to keep the yield on government 10-year bonds around zero.

Both measures are central to the BoJ’s efforts to hike consumer prices and stimulate the economy.
Markets are now keen to see when the BoJ start tapering the huge asset-buying programme.

Some of Japan’s top companies on Wednesday announced their lowest wage increases in four years, laying out another challenge to Prime Minister Shinzo Abe economic recovery scheme, dubbed Abenomics.

The plan—a mix of aggressive monetary easing and huge government spending along with reforms to the economy—was unveiled in early 2013.

It stoked a stock market rally and fattened corporate profits, but the long-term effect on the economy has been less dramatic.

While Japan’s job market is tight, individual spending—which accounts for more than a half of the country’s economic output—remains in the deep freeze.

Tokyo has been struggling to overcome deflation, with steady but underwhelming increases in prices over the past year. The central bank, aiming for two-percent inflation as part the broader growth bid, now expects to reach that goal by March 2019—four years later than planned.